You all know I am invested in gold and have advised friends and clients over the past eight years to invest in gold too if only a part of their savings.
You all know that for the first time in 8 years I became very cautious on gold investments about two weeks ago when Goldman Sachs produced a nine page piece of “research” exhorting all and sundry to invest in gold.
Today, Business Week front page leads with gold:
And then there is also this:
…… things that make you go “hmmmm”!!!
In the above chart you can see the gold bull market began around 2000. In the two smaller charts below the main chart, you can see the evolution of the S&P 500 and of the 30 year US Treasury Bond priced in gold bullion.
The main stream media coming out at this juncture to tell everyone that gold is a good investment is not at all timely. Not by a country mile.
I am, generally speaking, still bullish on gold for the long term; that would be for the next five to ten years. But I am also mindful that when a mainstream publication finally catches on to an investment trend and talks about it, it is usually time to start taking some profits and bide your time. The clincher, in my humble opinion, is of course the fact that Goldman Sachs should be waxing lyrical about investing in gold. The rationale here is that generally speaking, since banks have been allowed to run proprietary trading desks, trading can only be profitable if someone buys an investment from you at a higher price than what you paid for it. And since banks’ trading desks have been fabulously profitable for the past few years, that tells me that in the short term (the short term could be some weeks and/or months) GS needs to unload a bunch of positions and they will be unloading them on the people their report was aimed at.
The moral of the story is this. I am still long bullion and some mining company shares. However, I have significantly cut back on mining company shares in the past ten days and have a good chunk of cash on hand.
If I am right, I think I will be doing what Goldman Sachs is planning on doing. That is, sell a bunch of positions at the high, run them down to lower levels and get back in.
Then again, I may just be outsmarting myself here… time will tell….
More charts here: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3585763